Personal loans are one of the most common types of financing in the market. One of the reasons for this is that they are very flexible. This means that you can use it to finance almost anything, from a new car to loan consolidation. However, they are not the cheapest options all the time.
They can be expensive, especially when you have a poor credit score. To help you explore some of the other options you can have, this article will talk in-depth about some of the alternative financing options.
When you need to purchase something or pay a bill, credit cards can be a good option because of their convenience and sometimes, the ability to earn back some of your money through points.
Some people say that credit cards are expensive because of the interest rates. However, it’s not always the case. Most credit issuers typically offer a grace period where you can pay your balance in full before the interest kicks in.
A credit card is a physical card that you can use when card payments are available. When you open a credit card account, your issuer will set you a credit limit. This is the amount of money that you can use for purchases.
This credit limit will be reduced as you charge things to your credit card. That said, every time you use your credit card for purchases, you’ll have to pay it back along with interest to your issuer.
As mentioned earlier, most credit card issuers offer a grace period where you can pay your balance in full without paying an additional interest rate. However, some issuers will let you carry a monthly balance you’ll be charged interest (APR) for.
The APR typically depends on your issuer and usually reflects the cost of carrying a balance annually. Your APR includes your interest rate and the other cost your card has, like an annual fee.
Technically, credit union loans can be considered personal loans because they work pretty similar. However, credit union loans can lower interest rates and have better repayment terms. They also offer similar loan products and services from traditional banks.
But banks are private institutions offering loan products and services for profit. Credit unions, on the other hand, are member-owned organizations. Credit unions often pass along their savings to their members in the form of higher interest in their savings account, loan discounts, and even lower interest rates on loans.
Getting a credit union loan is easy, but joining one can be a hassle. Credit unions often have criteria for people to join their organization like being in the same neighborhood, membership in the church, friend or family referral, etc. But when you’re able to join, you’ll be saving a lot of money while getting financial help. The goal of a credit union is to promote financial stability to its members.
However, you have to take note that just because you’re a member already doesn’t mean that you’ll get a loan automatically. They still have some requirements before you can do that. Typically, they’ll do a background check, as well as a credit check.
Also, sometimes, you have to have donated a significant amount to the organization and been a member for quite some time. In general, you need to have a good standing in the organization before you can benefit from the credit union’s advantages.
A home equity loan, also called a second mortgage, is an installment loan where you will be borrowing against the equity you have built for your house. The loan amount is based on the market value of your house and the remaining balance you have for it. Home equity loans are divided into fixed-rate and variable rates.
Home equity loans are categorized into two types: fixed-rate and variable-rate. Variable-rate equity loans have a fluctuating interest rate that depends on several factors. However, the best thing about variable rate loans is that there are times when the interest will be much lower than usual, prompting you to save a lot of money in repayments.
On the other hand, fixed-rate equity loans are self-explanatory as your interest rate will be the same throughout the life of the loan. This can protect you from rising interest. However, you’ll be missing out on times when you can save some more money because the market fell into lowering interest rates.
The major setback of home equity loans is that if you don’t get your debt paid off, you risk losing your house.
Personal loans aren’t always the best option for every financial situation. In fact, because they can be expensive, they are the least optimal option. With that being said, the alternative financing options have their pros and cons and are suitable in specific situations. So picking the right one should be in your best interest.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.